U.K. Inflation Soars To 10.1%—A 40-Year High As Cost-Of-Living Crisis Bites
The rate of inflation in the U.K. jumped to a 40-year high in September amid soaring food and energy prices, deepening the country’s cost-of-living crisis and ramping up pressure on beleaguered Prime Minister Liz Truss as she struggles to salvage her premiership.
The rate of inflation rose to 10.1% in the 12 months to September, according to the U.K.’s Office for National Statistics (ONS).
The ONS said consumer prices were up from 9.9% in August and had returned to a 40-year high seen in July.
Soaring prices for food were a key driver of the increase, official figures showed, climbing to 14.5% in September, the largest annual jump since 1980.
Increasing bills for transport and energy also contributed to the increase, the ONS said.
Darren Morgan, the ONS’ director of economic statistics, said continuing drops in the price of petrol “partially offset” increases elsewhere and noted falling prices for second-hand cars and air travel.
High, or even record-breaking, inflation is hitting economies around the world. Consumer prices in the U.S. rose 8.2% in the 12 months ending in September. Soaring energy prices in the eurozone pushed inflation to 10% in September, a new record, though rates in some individual countries are much higher (inflation in Estonia is more than 24%). The increasing costs of living have driven political agenda around the world—it is a key issue for the upcoming midterms—and driven many to the streets in protest to demand more government action to reduce prices.
Inflation is a key measure of how the costs of goods and services increase over time. In real terms, it effectively decreases the value of money over time, meaning a dollar today will be worth less than a dollar in the future. While a degree of inflation is expected and even healthy for an economy, high and unstable rates can be dangerous and can even, in very extreme cases, spiral out of control and foment economic collapse. The rate of inflation in the U.K. sits just below the 40-year high of 10.2%, which was set in February 1982, according to the BBC. The rate is well above the Bank of England’s 2% target for inflation and the central bank predicted inflation will peak at 11% in October. It expects inflation to remain above 10% for “a few months before starting to come down.”
The rate will squeeze what are already strained finances for many in the U.K. and exacerbate a dire cost of living crisis. Continuing disruption from the Covid-19 pandemic and Russia’s invasion of Ukraine have driven up food and energy prices around the world and markets have reacted poorly to Truss’ constantly changing economic policies, severely denting the value of the pound and forcing the central bank to intervene.
What We Don’t Know
The fate of Truss. Britain’s new prime minister is deeply and profoundly unpopular, polls suggest, even among members and lawmakers of her own party, a number of whom have openly spoken about ousting her. After a series of humiliating u-turns on unpopular and unfunded fiscal policies she designed with ex-finance minister Kwasi Kwarteng—for he was unceremoniously fired—Truss installed a new finance chief, Jeremy Hunt, to reverse course. It is unsure whether Truss will be able to salvage her job and many lawmakers believe it is a matter of “when, not if” she will go. Truss has ruled out leaving on multiple occasions, though she has been known to change her mind.
What To Watch For
The Bank of England. The rate of inflation for September will increase pressure for it to hike interest rates further in November. The bank is also facing pressures to respond to repeated government u-turns on major fiscal policy, which has spooked markets, sent the pound plummeting and likely spurred further inflation.
UK inflation returns to 40-year high of 10.1% (Financial Times)